Skills and the Labor Market Introduction Do skills/abilities matter? Findings from the National Longitudinal Surveys Evidence Mechanical Model Implementation Likelihood Results Sergio Urzúa University of Maryland National Longitudinal Surveys 50th Anniversary Conference BLS, September, 2015 Distribution Latent Abilities Outcomes Conclusions The Greatest Challenge: Sources of Information For years, economists focused on the role of cognitive ability (IQ) as determinant of schooling, labor market and behavioral outcomes (Hernstein/Murray, 94) Skills and the Labor Market Introduction Evidence Mechanical Model Recent Evidence: Non-cognitive capabilities might be more important (and relevant) than cognitive traits. Implementation Likelihood Results Distribution Latent Abilities Outcomes I However, empirical analysis has been restricted by available data. Most of the sources of information do not contain data on multiple skills. The NLS have been the exception. They have fueled the academic debate in a wide range of topics. They have served as examples for more recent data collection efforts (STEP project, OECD new surveys, etc). Conclusions The Contribution of NLS to the subject Number of articles with ”Ability” and ”NLS” by year from Google Scholar 1800 1600 1400 1200 1000 800 600 400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Inputs (i) Genes (ii) Enviroment Health Care System Child Care School System Familial Enviroment Outputs (i) Cognitive Development (ii) Noncognitive Development (iii) Physical and Mental Health Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Health Care System School System Familial Enviroment Social Enviroment Outputs (i) Schooling Attainment (ii) Schooling Performance (iii) Social Behaviors (iv) Physical and Mental Health Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Health Care System School System Familial Enviroment Social Enviroment Health Care System Familial Enviroment Social Enviroment Outputs (i) Final Schooling Level (ii) Labor Market Outcomes (iii) Social Behaviors (iv) Physical and Mental Health Outputs (i) Physical and Mental Health (ii) Social Behaviors Birth Conception Chilhood Adolescence Figure 2. Human Development at Each Stage (inputs/ouputs) Adulthood Old Age Inputs (i) Genes (ii) Enviroment Health Care System Child Care School System Familial Enviroment Outputs (i) Cognitive Development (ii) Noncognitive Development (iii) Physical and Mental Health Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Health Care System School System Familial Enviroment Social Enviroment Outputs (i) Schooling Attainment (ii) Schooling Performance (iii) Social Behaviors (iv) Physical and Mental Health Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Health Care System School System Familial Enviroment Social Enviroment Health Care System Familial Enviroment Social Enviroment Outputs (i) Final Schooling Level (ii) Labor Market Outcomes (iii) Social Behaviors (iv) Physical and Mental Health Outputs (i) Physical and Mental Health (ii) Social Behaviors Birth Conception Chilhood Adolescence Figure 2. Human Development at Each Stage (inputs/ouputs) Adulthood Old Age Inputs (i) Genes (ii) Enviroment Health Care System Child Care School System Familial Enviroment INTERVENTION REMEDIATION Outputs (i) Cognitive Development (ii) Noncognitive Development (iii) Physical and Mental Health Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Health Care System School System Familial Enviroment Social Enviroment Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Inputs (i) Cognitive skills (ii) Noncognitive skills (iii) Health status Health Care System School System Familial Enviroment Social Enviroment Health Care System Familial Enviroment Social Enviroment INTERVENTION REMEDIATION INTERVENTION REMEDIATION INTERVENTION REMEDIATION Outputs (i) Schooling Attainment (ii) Schooling Performance (iii) Social Behaviors (iv) Physical and Mental Health Outputs (i) Final Schooling Level (ii) Labor Market Outcomes (iii) Social Behaviors (iv) Physical and Mental Health Outputs (i) Physical and Mental Health (ii) Social Behaviors Birth Conception Chilhood Adolescence Figure 2. Human Development at Each Stage (inputs/ouputs) Adulthood Old Age Skills and the Labor Market Economic intuition Introduction I A life cycle model of youth and adult decision making over horizon T̄ : Agent maximizes Z T exp(−ρt )U (c (t ), `(t ); η ) dt 0 subject to dynamic constraints: • A(t ) = Y (t )h (t )`(t ) − P (t )0 c (t ) + rA(t ), • h (t ) = ϕ (h (t ), I (t ), τ ) , Y (t ) = R (h (t ); θ ) , and initial conditions h (0), A(0). Evidence Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions I Cognitive and noncognitive skills can affect: C N C N preferences η = f ,f ,ρ = ρ f ,f , human capital productivity τ = τ f C , f N , direct market productivity θ = θ f C , f N , and h (0) = h0 f C , f N , A(0) = A0 f C , f N . I This illustrates why these factors (f C , f N ) should be able to explain a variety of outcomes. Skills and the Labor Market Abilities Introduction Cognitive and socio-emotional skills on: I Education I Salaries I Labor experience I Self-employment and entrepreneurship I Social behavior (risky correlated behaviors): I I I I I Criminality (arrests and convictions) Teenage pregnancy Drug use Cigarette smoking Bullying and Cybercrime (Sarzosa and Urzua, 2015) Evidence Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Evidence Skills and the Labor Market Introduction Evidence I I I Europe: Occupational Labor Markets (association between capacities acquired during vocation school and those demanded by labor market) show better labor market indicators (e.g., Germany/Austria). USA: Multiple Capacities as cornerstone of labor demand. Cognitive or academic abilities are relevant, but socio-emotional abilities tend to dominate. Connection between employment and abilities. Periods of unemployment appear to be associated with permanent decreases in abilities. Defining, measuring and identifying different capacities is not trivial. Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Evidence Hernestein and Murray (1994), Neal and Johnson (1996), Gottfredson (1997), Harting and Wigdor (1998), Cunha et. al. (2006), Cawley, Heckman, Vytlacil (2001), Conti et al (2010), Fergusson et al (2005), Carneiro and Heckman (2003), Armor and Roll (1994), Glewwe (2002), Kuncel et al (2004), Chown (1959), Heckman et al (2006), Urzua (2008), Conti et al (2010), Murnane et al (2000), Lazear (2003), Bowles and Gintis (1976), Klein et al (1991), Barrick and Mount (1991), Tett et al (1991), Borghans et al (2008), Maxwell (2007), Duncan and Dunifon (1998), Moss and Tilly (2000), Maxwell (2007), Duckworth et al (2007), Diaz. et. al (2010), Carneiro et at. (2007), Lindquist and Westman (2010), Van Praag et al. (2009), Brockhaus (1980), Hasemark (2003), Kaufman, et al (1995), Caliendo et al. (2007), Ekelund et al. (2005) and Stewart et al. (1999), Fairlie (2002), Dunn and Holtz-Eakin (2000), Burke et al (2001), Taylor (1996), Hamilton (2000), Eren and Sula (2012), Spector and O.Connell (1994), De Mel et al. (2008 and 2009), Benz and Frey (2008), Caliendo and Kritikos (2012), Hartog and Sluis (2010), Bassi et al (2012), Tambunlerchai(2011), Yamaguchi (2012), Boehm (2013), Heckman et. al. (2014), Seymour, et. al. (2014), Colen (2014), Houle and Keene (2014), Amato and Anthony (2014), Hernandez and Pressler (2014), Sarzosa and Urzua (2015), Prada (2015), Rodgers , et. al. (2015), Hendricks et. al. (2015), Johnson (2015), Chen (2105), Prada and Urzua (2016) and many others Skills and the Labor Market Introduction Evidence Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Evidence in a nutshell Skills and the Labor Market Introduction Evidence Mechanical I I Cognitive ability strongly predicts many outcomes, including labor market productivity, human capital accumulation and social behaviors (e.g., AFQT in NLSY79). Model Noncognitive abilities strongly predict labor market outcomes (self-esteem, locus of control, agreeableness), schooling attainment (consciousness), productivity (self-control and agreeableness) and even physical and mental health (locus of control). Conclusions Implementation Likelihood Results Distribution Latent Abilities Outcomes Skills and the Labor Market Introduction Evidence Mechanical Model Implementation Likelihood Empirical Results Results Distribution Latent Abilities Outcomes Conclusions .6 .4 0 .2 Density .8 1 Figure 2. Ability Levels by Schooling Level Sorting into Schooling −2 −1 0 1 2 Cognitive Factor .6 .8 HS Grad. Some College .4 4yr Coll. Grad. 0 .2 Density 1 HS Drop GED −2 −1 0 1 2 Socio−emotional Factor Cognitive and socio-emotional abilities have significant associations with education 9 8 7 6 5 4 Graduation 3 2 2 Figure 3. College 1 Decile of Cognitive Decile of Non-Cognitive Probability and Confidence Interval (2.75-97.5%) COGNITIVE SOCIO-EMOTIONAL 1 1 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0 1 2 3 4 5 6 Decile 6 4 7 8 9 10 0 1 2 3 4 5 6 7 8 Decile Notes: The data are simulated from the estimates of the model and our NLSY79 sample. We use the standard convention that higher deciles are associated with higher values of the variable. The confidence intervals are computed using bootstrapping (200 draws). Frequency indicates proportion of individuals with the indicated level of education whose abilities lie in the indicated decile of the distribution. 9 10 Figure 5. Mean Log Wages by Age 30 - Males i. By Decile of Cognitive and Non-Cognitive Factors 3 Log Wages 2.8 2.6 2.4 2.2 10 2 10 8 9 8 7 6 6 5 4 Decile of Cognitive 4 3 2 2 1 Decile of Non-Cognitive Log Wages and Confidence Interval (2.75-97.5%) ii. By Decile of Cognitive Factor iii. By Decile of Non-Cognitive Factor 3 3 2.5 2.5 2 2 4 6 Decile 8 10 2 2 4 6 Decile 8 10 Figure 8. Mean Log Wages of High School Graduates by Age 30 - Males i. By Decile of Cognitive and Non-Cognitive Factors 3 Log Wages 2.8 2.6 2.4 2.2 10 2 10 8 9 8 7 6 6 5 4 Decile of Cognitive 4 3 2 2 1 Decile of Non-Cognitive Log Wages and Confidence Interval (2.75-97.5%) ii. By Decile of Cognitive Factor iii. By Decile of Non-Cognitive Factor 3 3 2.5 2.5 2 2 4 6 Decile 8 10 2 2 4 6 Decile 8 10 Figure 10. Probability of Employment by Age 30 - Males i. By Decile of Cognitive and Non-Cognitive Factor 1 Probability 0.8 0.6 0.4 0.2 10 0 10 8 9 8 7 6 6 5 4 Decile of Cognitive 4 3 2 2 1 Probability and Confidence Interval (2.75-97.5%) ii. By Decile of Cognitive Factor iii. By Decile of Non-Cognitive Factor 1 1 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0 2 4 6 Decile 8 Decile of Non-Cognitive 10 0 2 4 6 8 Decile Notes: The data are simulated from the estimates of the model and our NLSY79 sample. We use the standard convention that higher deciles are associated with higher values of the variable. The confidence intervals are computed using bootstrapping (50 draws). 10 Beyond levels: Explaining gaps and disparities Skills and the Labor Market Introduction Evidence Consider for example a model for the analysis of racial differentials: S ln Y = ϕBlack + ∑ φs Ds (T) + γT + U s =1 Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions where ϕ is: ϕ = E [ln Y B − ln Y W |T, {Ds }Ss=1 ] Thus, we can analyze how “the gap” change if we eliminate racial differences in abilities. Age 23-27 33-37 23-27 33-37 Table 1. Returns to Ability (NLSY79) Cognitive Socio-emotional Afro-american Whites Afro-american White <12 Years of Education 3% 8% 6% 3% 9% 7% 12% 7% 12 Years of Education 14% 7% 6% 2% 15% 7% 19% 7% Conclusions: I Both dimensions are “priced” in the market I Socio-emotional returns are larger among minorities I Positive association between returns and education How malleable cognitive and non-cognitive skills are? Skills and the Labor Market Introduction Evidence Mechanical I I I A world in which skills are non-malleable offers no hope for policies or interventions aimed at boosting skills (skills vs endowments). For cognitive skills the evidence suggests the existence of early critical periods (childhood) during which these skills change/evolve. Cognitive skills seem then stable during adulthood and they decline at older ages (55 or older). Between 60 and 80% of cognitive abilities measure during adulthood can be explained by genetic factors (intergenerational transmission of skills). Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Skills and the Labor Market Economists focused on the role of skills as determinant of schooling, labor market and behavioral outcomes. Introduction Evidence Mechanical Model Next challenge is to identify the mechanisms behind the production function of skills, skill formation (Cunha and Heckman, 2008; using CNLSY79) Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions I I I Beyond early years. Schooling system: Primary, secondary (technical?)? Training programs for adults Additionally, we need more cost-benefit analyses coming from public policies. Are There Other Dimensions of Ability? Skills and the Labor Market Introduction The evidence demonstrates independent and important roles for cognitive and socio-emotional skills: Determine schooling attainment, labor market outcomes and social behavior. The following slides examine the role of a particular dimension of ability “Mechanical Ability” Evidence Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions I Unlike standard constructs, it reduces the probability of attending a four-year college, while presenting positive reward on the labor market. I We find that for individuals with very high levels of mechanical ability but low levels of cognitive and socio-emotional ability, not going to college is associated with higher expected hourly wage. Technical Composites of the ASVAB in NLSY79 Three section of questions used to create Military Occupational Specialty (MOS) scores Skills and the Labor Market Introduction Evidence Mechanical Mechanical comprehension section Ability to solve simple mechanics problems and understand basic mechanical principles Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Technical Composites of the ASVAB in NLSY79 Three section of questions used to create Military Occupational Specialty (MOS) scores Skills and the Labor Market Introduction Evidence Mechanical Mechanical comprehension section Ability to solve simple mechanics problems and understand basic mechanical principles I Electronics information section Covers topics relating to the principles of electronics and electricity. I Automotive and shop information Technical knowledge, skills and aptitude for automotive maintenance and repair wood and metal shop practices. Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Skills and the Labor Market Correlations: Residuals Introduction Evidence Table: Correlation Cognitive and Socio emotional with Technical Composites of the ASVAB Auto Mech Elect AFQT SocioE Auto 1.00 0.63 0.62 0.34 0.12 Mech 1.00 0.63 0.44 0.15 Elect AFQT SocioE Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes 1.00 0.46 0.15 Conclusions 1.00 0.18 1.00 Note: The table displays the correlations of the residuals of test scores on mother’s and father’s education, cohort dummies, family income, number of siblings. AFQT is a proxy cognitive measure. It represents the standardized average over the ASVAB score in six of the ten components: math knowledge, arithmetic reasoning, word knowledge, paragraph comprehension, numerical speed and coding speed. Socio-emotional is the standardized average of the scores for the Rotter and Rosenberg tests Skills and the Labor Market Roy Framework ( Y = Y (0) = µ0 + ε 0 Y (1) = µ1 + ε 1 if D = 0 ifD = 1 D = 1{Z γ + ε D ≥ 0} I Not assuming normality on ε 0 , ε 1 , ε D , imposing instead: S ε 0 = λC0 θC + λM 0 θM + λ0 θS + e0 S ε 1 = λC1 θC + λM 1 θM + λ1 θS + e1 S ε D = λCD θC + λM D θ M + λ D θ S + eD I Assuming e0 ⊥e1 ⊥eD and (θC , θM , θS )⊥(e0 , e1 , eD ) e0 ∼ N (0, σ02 ), e1 ∼ N (0, σ12 ), and eD ∼ N (0, 1) Introduction Evidence Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Identification: Measurement System Ti = [Ci , Si , Mi ]0 Skills and the Labor Market Introduction Evidence I I Use test scores to identify parameters of the distribution of cognitive, mechanical and socio-emotional factors. Each set of testS affected by own factor for cognitive and socio-emotional ability. Ci = XC ,i β C + λcC θC ,i + eC ,i Si = XS,i β S + λsS θS,i + eS,i I For vector of mechanical test scores: Mi = XM,i β M + λcMl θc,i + λM M θM,i + eM,i Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions Likelihood Function I We observe {Yi , Ti , Di } for i = 1, ..., N, with Yi = Di Y1,i + (1 − Dj )Y0,i I Key Insight: Conditional on unobserved abilities, ε 0 ,ε 1 , and ε D and ε T are mutually independent. Thus, N N i =1 i =1 ∏ f (Yi , Ti , Di |X , XT , Z ) = ∏ Z f (Yi , Ti , Di |X , XT , Z , θ )dF (θ ) where we can write f (Yi , Ti , Di |X , XT , Z , θ ) = f (Yi , Di |X , Z , θ )f (Ti |XT , θ ) Skills and the Labor Market Introduction Evidence Mechanical Model Implementation Likelihood Empirical Results Results Distribution Latent Abilities Outcomes Conclusions Goodness of Fit: Overall Distribution of Wages Skills and the Labor Market Introduction Evidence 1 Mechanical Model .8 Implementation Likelihood .6 Results .4 Distribution Latent Abilities Outcomes 0 .2 Conclusions 0 1 2 3 4 x Simulated Observed 5 Joint Distribution Cognitive and Mechanical Ability Skills and the Labor Market Introduction Evidence Mechanical 3.5% Model 3.0% Implementation Likelihood 2.5% Results 2.0% Distribution Latent Abilities Outcomes 1.5% Conclusions 1.0% 0.5% 0.0% 0.82 0.58 0.34 0.10 -‐0.14 -‐0.38 -‐0.62 -‐0.86 Cogni0ve Ability -‐1.10 Mechanical ability -‐1.34 σθ M = 0.58, σθ c = 0.73, σθ S = 0.89, COV (θ c , θ m ) = 0.21, ρθ c θ m = 0.52 Distribution Measurements vs Estimated Cognitive Ability: Marginal CDF Skills and the Labor Market Introduction Evidence Mechanical Model Implementation Likelihood CDF of Cognitive Measure by College 1 Results Density .8 Distribution Latent Abilities Outcomes .6 .4 Conclusions .2 0 -3 -2 -1 0 Cognitive Measure No College 1 2 College σθ c = 0.73, COV (θ c , θ m ) = 0.21, ρθ c θ m = 0.52 Distribution Measurements vs Estimated Socio-emotional Ability: Marginal CDF Skills and the Labor Market Introduction Evidence Mechanical Model CDF of Socio-emotional Measure by College 1 Results .8 Density Implementation Likelihood Distribution Latent Abilities Outcomes .6 .4 Conclusions .2 0 -3 -2 -1 0 Socio-emotional Measure No College 1 2 College σθ S = 0.89, COV (θ C , θ S ) = 0, COV (θ M , θ S ) = 0, Distribution Measurements vs Estimated Mechanical Ability: Marginal CDF Skills and the Labor Market Introduction Evidence Mechanical Model Implementation Likelihood CDF of Mechanical Measure by College 1 Results Density .8 Distribution Latent Abilities Outcomes .6 .4 Conclusions .2 0 -4 -2 0 Mechanical Measure No College 2 College σθ M = 0.58, COV (θ C , θ M ) = 0.21, ρθ C θ M = 0.52 Annual Earnings Effect of 1 SD of each ability: Mechanical has Positive Returns Table: Annual Earnings: Estimated Marginal Effects Overall “College”=0 (w0) “College”=1 (w1) Cognitive 0.130*** Mechanical 0.062*** Socio-emotional 0.055*** Note: Standard errors in parenthesis. We control for cohort dummies as well as geographical controls for region and urban residence at age 25. Earnings include salary and wages from all jobs reported in the past calendar year. Estimates correspond to the log of the average of earnings between ages 25 and 30. Annual Earnings Effect of 1 SD of each ability: Mechanical has Positive Returns Table: Annual Earnings: Estimated Marginal Effects Overall College=0 (w0) College=1 (w1) Cognitive 0.130*** 0.049*** 0.144*** Mechanical 0.062*** 0.083*** 0.048*** Socio-emotional 0.055*** 0.048*** 0.058*** Note: Standard errors in parenthesis. We control for cohort dummies as well as geographical controls for region and urban residence at age 25. Earnings include salary and wages from all jobs reported in the past calendar year. Estimates correspond to the log of the average of earnings between ages 25 and 30. Heterogeneity: Effect of Education by Ability Levels For Those Who Decided to Attend Four-year College E [Y1 − Y0 |D = 0] Mechanical Low C - Low S Low C - High S High C - Low S High C - High S Quintile 1 0.048 ** 0.060 *** 0.248 *** 0.274 *** Quintile 5 0.019 * 0.017 * 0.237 *** 0.215 *** Quintile 10 -0.030 * -0.022 * 0.188 *** 0.212 *** Wrapping up Skills and the Labor Market Introduction I I I I I Evidence suggest independent and important roles for cognitive and socio-emotional traits NLS have been “the” building block of this research agenda But we are far from understanding the economic mechanisms behind these roles (discount factors, time preference parameters, prices, etc) The influence of NLS will continue. However, to maximize its impact it must also evolve: New cohorts, new dimensions, new variables, administrative records, etc, Old and new hungry customers will be waiting... Evidence Mechanical Model Implementation Likelihood Results Distribution Latent Abilities Outcomes Conclusions
© Copyright 2024 Paperzz